Across the country, a number of infrastructure developments are expected to become operational in 2020, bringing a wave of change to the propane market.
While a more robust supply chain benefits the industry, it also brings shifting market conditions, according to Tyler Kelly, director of natural gas liquids supply and analytics at CHS. Kelly says it’s important for marketers to understand how these infrastructure updates will impact supply and demand.
Opening the playing field
“As supply points become more connected, every gallon becomes more mobile,” Kelly says. The completion of pipeline and rail infrastructure in 2020 increases access to export terminals by nearly 450,000 barrels per day. “This will expand accessibility around the globe as there is more connectivity to new demand outlets.”
According to Kelly, the effects of these updates may be most noticeable in more isolated areas, such as Western Canadian and Bakken production. This is because some of these areas have gained new and more robust pipeline access to transport their production to hub storage and export outlets. In Canada, for example, increasing export capacity in the Pacific Northwest means increased competition for propane supply that has traditionally served the Midwest.
Regions are disappearing where propane producers lack pipeline connectivity, which had previously insulated them from external demand and led to favorable pricing and availability for local marketers.
“Without pipeline access, a fractionator is highly dependent on local truck or rail demand to move the plant’s daily output,” Kelly says. “But through the coming infrastructure improvements, more producers are gaining access to domestic and international markets that used to be out of reach.”
For marketers, increased infrastructure will mean a new dynamic when it comes to supply-sourcing, Kelly says. As propane producers gain access to new customers outside their region, local marketers will find themselves facing more competitive buying environments.
Waiting can be costly
With more marketers vying for each fractionator’s propane production, the gallons will go quicker than in the past, Kelly explains. If marketers aren’t proactive, it’s possible that they may encounter difficulties obtaining sufficient supply to meet end-user demand. “Taking a more proactive approach to planning and securing propane supply will be critical to navigating the 2020-21 season,” says Kelly.
Another factor facing the propane marketplace is stressed production margins resulting from the recent sell-off across the energy complex, which may have near-term impacts on supply. Already, the energy market is reacting by decreasing production at refineries and capping wells across the country. In this current environment of supply volatility and depressed economics for propane, the importance of supply planning becomes critical.
Preparing is essential
To ensure marketers are prepared for new market dynamics in the wake of upgraded infrastructure, Kelly says it’s more important than ever for marketers to secure their supply in advance. “Supply planning should never be an afterthought,” Kelly says. “Partner closely and proactively with a wholesaler that can help prepare your business — not only against infrastructure changes, but also against a variety of shifting market conditions.”
Marketers can learn how to secure their gallons through CHS Propane by visiting CHS Propane Insights or by calling 1-800-852-8184.